Shares in Sportech have fallen by almost 50% after the company proposed delisting from the Alternative Investment Market (AIM) of the London Stock Exchange.

Edinburgh-based Sportech operates sports bars and other betting venues in the US state of Connecticut, where it has an exclusive licence to offer pari-mutuel wagering and an agreement with the Connecticut Lottery Corporation to provide retail sports betting.

The business aso offers online pari-mutuel betting in Connecticut via Mywinners.com, and nationwide across the US via 123bet.com.

H1 2023 results

Sportech announced the proposal today (11 September) alongside the publication of its financial results for the first half of 2023.

Revenue for the half-year totalled £13.5m, consisting of £12.7m from its retail business and £894,000 from online.

That represented an overall year-on-year increase of 1.4% on a constant currency basis, as growth of 1.7% in the retail segment was partially offset by a 2% decline in online revenue.

Adjusted EBITDA for the period totalled £869,000, up substantially from £311,000 in H1 2022.

Overall, the business declared a loss for the period of £344,000, down from an £831,000 loss in the prior year.

Delisting proposal

Following a review evaluating the benefits and drawbacks of operating as a publicly listed company, Sportech is now set to ask shareholders to vote on a proposition to cancel its shares on AIM and re-register as a private limited company.

The review acknowledged “signifcant burdens”, both financial and non-financial, associated with maintaining the company’s public status.

The financial cost, alongside the legal and regulatory burdens of remaining public, are considered “disproportionate to the benefits of the company’s continued admission to trading on AIM,” according to Sportech’s board.

In 2022, the cost of maintaining its public listing was approximately £450,000, Sportech added, contributing to its full-year pre-tax loss of £934,000 during the period.

That figure also represented some 28% of the company’s total adjusted EBITDA for the year.

“Given the lower costs associated with private limited company status, it is estimated that the cancellation and re-registration will materially reduce the company’s recurring administrative and adviser costs by approximately £450,000 per annum, which the board believes can be better spent supporting and investing in the Sportech group’s business,” the firm added.

Other reasons cited for the proposed delisting included a lack of liquidity for trading in Sportech’s ordinary shares, which contributes to increased volatility in its share price.

The board added that it believes “a private limited company can take and implement strategic decisions more quickly than a company which is publicly traded as a result of the more flexible regulatory regime that is applicable to a private company.”

Shareholder vote

Sportech’s board therefore believes that a cancellaction and re-registration of the company’s shares is in the best interests of both the company and its shareholders.

A circular is now expected to be sent to shareholders, detailing the background to, and reasons for, the proposed delisting, during the second half of September.

The circular will also contain a notice convening a general meeting at which shareholders will be asked to vote on the proposal.

The proposal requires at least 75% of votes cast by shareholders to be in favour of the resolution.

“Despite delivering improving operational results announced today, the substantial financial cost associated with maintaining a public listing, given our current scale, and the increasing volatility in the market valuation is adversely impacting net returns and future prospects,” said Sportech executive chairman Richard McGuire.

“Regrettably, in light of these circumstances, we find it necessary to take the difficult but pragmatic step of proposing delisting from the AIM market today.”

Rush Street Interactive (RSI) has reported better-than-expected Q1 2023 results, with revenue up 20% year-on-year and an 80% improvement in adjusted EBITDA losses.

Topline numbers

RSI generated revenue of $162.4m, up 20% year-on-year, during Q1 2023.

Net loss was $24.5m in Q1, down from a net loss of $52.3m during the first quarter of 2022.

RSI’s adjusted EBITDA loss for the quarter was $8.7m, an improvement of 80% compared to the prior year and the company’s best performance in the last seven quarters.

News nugget

A disciplined approach to marketing spend has contributed to RSI’s better-than-expected Q1 results.

Advertising and promotions expenses were reduced to $49.4m, a 26% decrease from the previous year and down 22% sequentially.

Meanwhile, revenue grew 20% compared to Q1 2022, primarily driven by more than 100% growth in Latin America and new market launches in North America.

“We continue to perform very strongly in Colombia,” CEO Richard Schwartz said. “In the first quarter, on a year-over-year basis in Colombian pesos, we grew by over 40% across the board, including in handle, GGR and revenue,” he added.

In US dollars, RSI grew revenue 20%, reflective of year-on-year headwinds in foreign exchange rates.

During the firm’s earnings call, Schwartz explained the decision to wind down a partnership with the Connecticut Lottery Corporation, stating that it was not the right fit for RSI, and resources could be used more efficiently elsewhere.

“While this wind down will have an impact on our future year’s revenues, it will also have a positive impact for us on profitability in the coming years. We thought long and hard about this decision,” he said.

“In any market, we have to see appropriate return on our investment. As the Connecticut market and partnership unfolded, it became clear that it was not the right fit for RSI and our capital and resources could be used more efficiently elsewhere,” Schwartz added.

During Q1 2023, costs increased 19% year-over-year and by 10% sequentially to $14.7m.

CFO Kyle Sauers explained that although RSI continues to invest in both its technology and corporate functions, “we remain vigilant about monitoring costs and the way we invest to support our growth and innovation plans over the coming years”.

Sauers also cautioned that costs are expected to continue to rise throughout the year.

Despite this, RSI’s balance sheet “remains in excellent shape”, with $147m in unrestricted cash and no debt, indicating that the company is well-funded to achieve profitability.

Best quote

“On the back of these excellent results, we remain on track to achieving our goal of profitability for the second half of this year. We are staying disciplined in our approach and successfully balancing growth and profitability over the long run.”
Richard Schwartz RSI CEO

Best question

Edward Engel from Roth MKM asked Sauers whether RSI’s 2023 revenue guidance included the impact of exiting from Connecticut.

Sauers confirmed that the guidance does take into account the Connecticut wind down, but the company is still uncertain about the exact timing of the exit as they are cooperating with the lottery in that process.

Despite this uncertainty, RSI is confident that their revenue guidance range accounts for different outcomes or time frames for the wind down.

Current trading & outlook

RSI expects revenue for the full year 2023 to come in between $630m and $700m, unchanged from its previous expectations.

At the midpoint of the range, revenue of $665m represents 12% year-over-year growth.

Rush Street Interactive (RSI) has come to a joint agreement with the Connecticut Lottery Corporation (CLC) to wind down their online and in-person sports betting partnership in the US state.

While the CLC begins to look for a new sportsbook partner, RSI will continue to operate the state lottery’s sports wagering services until a replacement is found, with a transition expected to take place in the second half of 2023.

RSI said it would work closely with the CLC to minimise any potential disruptions to players or business partners as the operation is wound down. The partnership includes online betting via the PlaySugarHouse brand.

RSI CEO Richard Schwartz commented: “We thank the CLC for their partnership over the last two years. We are proud of what we have accomplished together in Connecticut and have enjoyed the relationships that we have built with the players.

RSI CEO Richard Schwartz: “Through the transition we plan to continue to support all player wagers and ensure a positive player experience and expect the changeover will have an immaterial impact on our guidance for 2023.”

“Consistent with our long-term strategic goals, after much deliberation and discussions with the CLC, we believe it is in the best interest of RSI and our stockholders to wind down this partnership.

“Through the transition we plan to continue to support all player wagers and ensure a positive player experience and expect the changeover will have an immaterial impact on our guidance for 2023,” Schwarz added.

Earlier in March, RSI revealed that it expects to achieve positive adjusted EBITDA for the second half of 2023.

In Q4 2022, RSI generated a 27% year-on-year revenue increase to $165m.

The company’s Q4 2022 net loss was $31.1m, an improvement from the $38.1m in net losses it saw in Q4 2021.

For 2023, RSI anticipates revenue in the range of $630m to $700m. Achieving the midpoint of $665m would result in a 12% increase compared to the previous year.

Betting operator Sportech expects to report full-year 2022 adjusted EBITDA ahead of market consensus, according to a pre-close trading update published today (24 January).

Sportech operates both physical and online pari-mutuel betting channels across 10 venues in Connecticut, and is also licensed by the Connecticut Lottery Corporation to offer sports betting under the PlaySugarHouse brand.

Shares in the business are trading some 7% higher today after it announced it had delivered “solid growth” in the second half of 2022. 

The firm said that GGR, including from sports betting, continued to perform strongly, while food and beverage (F&B) revenue also delivered solid growth.

Alongside its growing revenues, the London-listed business has also been able to “significantly” reduce its group operational costs, it added.

Net cash as of the end of the year was deemed “healthy” by the operator, which it said gives the potential to return further capital to shareholders in H1 2023.

In 2022, 7p per share was returned to shareholders in cash.

“The group continues to evolve and deliver new growth opportunities,” said Sportech executive chairman Richard McGuire.

“We are strengthening relationships with our betting partners and aggressively reshaping non-operational costs to align with group scale. 

“The outlook for 2023 and beyond is very positive. We will continue to discuss the future business structure with key shareholders to ensure alignment with the board on objectives and direction for the divisions and group,” McGuire concluded.

In response to the update, London-based investment bank Peel Hunt has upgraded its full-year EBITDA forecast for Sportech from £0.7m to £1m, but admitted the actual figure could be higher.

Peel Hunt also estimated that the firm ended 2022 with around £8m of surplus cash – equivalent to 8p per share in the business.

The update “should provide a supportive backdrop for exploring new opportunities,” Peel Hunt added, while reiterating its previously issued Buy recommendation for the stock and 43p per share target price.

Sportech’s latest financial report was published in September 2022 and covered the first half of the year.

Revenue to 30 June totalled £12.6m, delivering gross profit of £6.5m and adjusted EBITDA of £0.3m.

For comparison, in 2021 full-year revenue came to £22.9m, while adjusted EBITDA came in at a £1.8m loss.

The business has streamlined this year, disposing of non-core assets and focusing its resources on covering a few key areas, namely sports betting and digital lottery operations in Connecticut.